1.4 Types of business organisation Flashcards
What is a ‘sole trader’?
A business that is owned and controlled by just one person who takes all of the risks and receives all of the profits.
Name the advantages and disadvantages of a sole trader.
Ads: - Quick and easy to set up - Makes all the decisions - Has complete control - Keeps the profit Disads: - Unlimited liability - May not be able to raise funds to expand the business - Maybe have to work long hours - Difficult to compete with larger rival firms - May not have the business skills to run a business
What is a ‘partnership’?
A business formed by two or more people who will usually share responsibility for the day-to-day running of the business
Name the advantages and disadvantages of a partnership.
Ads: - Easy to set up a deed of partnership - Partners invest in the business so greater access to funds - Shared decision making - Shared management and workload Disads: - Unlimited liability - Share the profits - Business ceases to exist if one partner leaves - Decisions binding on all partners - Difficult to raise finance
What are private limited companies?
Often a small to medium-sized company, owned by shareholders who have limited liability. The company cannot sell its shares to the general public
What are the features of private limited companies?
- Usually a very small number of shareholders - Fairly small - Can only be sold privately - Often difficult to raise finance - Limited liability - Profit belongs to shareholders - Legal documents must be completed when setting up the business - Continues even if one or more shareholders die - Vote on major decisions
What are public limited companies?
Often a large company; owned by shareholders who have limited liability. They can sell its shares to the general public.
What are the features of public limited companies?
- Usually a large number of shareholders - Most common form of organisation for very large companies - Shares can be offered to the public and other organisations - Ownership and control are separated - Setting up is very costly - At risk of takeovers - Legal requirements are stricter than for private limited companies - Often successful in rising capital
What is a franchise?
A business system where entrepreneurs buy the right to use to the name, logo and product of an existing business
Name the advantages and disadvantages of franchises.
Ads: - Less chance of failure - Franchises often provides advice and training to the franchisee - Franchisors finance the promotion of the brand through national advertising - The franchisor would have already checked the quality of suppliers Disads: - Initial cost of buying into a franchise can be very expensive - The franchisor will take a percentage of the revenue of profits made by the franchisee each year - There are very strict controls over what the franchisee is allowed to do with the product pricing and store layout - The franchisee doesn’t gain any personal recognition, they only gain recognition because of the existing brand
What is a joint venture?
Two or more businesses agree to work together on a project and set up a separate business for this purpose
Name the advantages and disadvantages of joint ventures
Ads: - Reduces risks for each business and cuts costs - Each business brings different expertise to the joint venture - Market and product knowledge can be shared Disads: - Any mistakes made may damage the reputation of all firms in the joint venture - The businesses may have different business cultures of styles of leadership, making decision-making difficult
What is the difference between unincorporated businesses and limited companies?
An incorporated business does not have a separate legal identity from its owners, whereas an incorporated business does.
What is the difference in risks, and ownership between types of business organisations?
Unincorporated business have a greater legal and financial risk than incorporated business because: - Owners and the business have the same legal identity - Owners have unlimited liability for business debts
What is limited liability?
When the owner is not personally responsible for the business’ debts
